News: CJ Exclusives

BCBSNC opposes UNC Health Care, Carolinas Health Care partnership

CEO Conway says partnership unlikely to cut costs or improve access; antitrust experts agree

UNC Medical Center, Chapel Hill (Image by Yeungb, Wikicommons)
UNC Medical Center, Chapel Hill (Image by Yeungb, Wikicommons)

The proposed partnership making UNC Health Care and Carolinas HealthCare System one of the largest nonprofit health systems in the nation has a new antagonist: BlueCross BlueShield of North Carolina.

In a letter dated Wednesday to the top executives of the two systems, BCBSNC President and CEO Dr. Patrick Conway publicly came out against the partnership.

“Blue Cross NC has a responsibility to our customers to help slow rising health costs. After a thorough review of independent research which shows that when health care systems combine costs for consumers go up, Blue Cross NC cannot support your proposed combination,” the letter to Gene Woods of Carolinas HealthCare and Dr. Bill Roper of UNC Health Care said.

Former federal antitrust enforcers agree the deal could be problematic.

Martin Gaynor and Thomas Greaney say the partnership is unlikely to dramatically improve delivery, access, and quality of care, or lower health care costs.

Greaney is a professor at the University of California Hastings College of the Law and a former Department of Justice antitrust enforcer. Gaynor is a professor of health economics and policy at Carnegie Mellon University and former director of the Bureau of Economics at the Federal Trade Commission.

They say a joint operating company could drive costs up by stifling competition and forcing insurers to increase payouts.

Greaney said some health care economists counter that consumers can be better off when a dominant health care system dukes it out with a dominant insurer.

He calls it the Sumo wrestler theory, but is skeptical it helps consumers.

“[The companies] don’t necessarily go toe to toe and bargain for lower prices for the consumer,” Greaney said. “They really say, ‘You protect my hospital market, and I’ll protect your insurance market from competition.’”

The partnership could impose higher costs on Medicare and Medicaid. Hospitals negotiate prices for Medicare Advantage plans such as North Carolina’s State Health Plan offers. If a hospital system dominates the health care landscape, it is in a more powerful position to demand higher prices, Greaney said. State Treasurer Dale Folwell has raised that concern.

North Carolina is in the process of converting its Medicaid system into a managed care model, with statewide systems likely operated by large insurance companies. It could be harder for the state to control Medicaid costs if the managed care players can’t negotiate with a dominant hospital system in the market, Greaney said.

UNC and Carolinas HealthCare are publicly owned systems. They have about $14 billion in annual operating revenue and billions more in public assets between them. They operate more than 50 hospitals with some 92,000 employees.

They say a joint operating company, which has different legal attributes than a merger, would allow them to pool resources under a separate governing board. Benefits reputedly would include more comprehensive health care, lower costs, and more service to rural areas. The broad framework and vision of the proposal was outlined in their letter of intent.

The hospital systems say a final agreement could be reached and publicly revealed in a few weeks.

Typically, a merger of this size would require the parties to file legal notices. The filing automatically triggers a regulatory review by one or both of the federal agencies. But because the hospitals plan a partnership venture and not a full-blown merger, they aren’t required to file that premerger notification.

Carolinas HealthCare spokesman Chris Berger said the parties didn’t file the notices.

Gaynor said the federal agencies can examine the deal even without the filing, and given the gigantic proposed partnership, he fully expects federal review. One or both agencies may have communicated with Attorney General Josh Stein’s office already, he said. State attorneys general often partner with federal regulators on antitrust investigations.

Laura Brewer, a spokeswoman for Stein, said his office would review the hospitals’ final agreement to ensure it complies with antitrust and nonprofit corporation laws.

A federal review would start by determining if the partnership endangers competition, Gaynor said.

“Hospital mergers and acquisitions in general haven’t really delivered much in terms of lower cost, higher quality care, more care coordination, better population health access, more charity care. None of that stuff,” Gaynor said. “There are some cases where consolidation has done better in one way or another, but not across the board.”

With 1,400 to 1,500 hospital mergers over the past couple of decades, he said, there’s plenty of evidence to draw distinct conclusions.

“In general, integrated systems don’t do better than independents,” Gaynor said. “[F]rom what we’ve seen up to this point, the evidence really is that these things don’t live up to the press clippings.”

Greaney agrees, saying hospital consolidations “produce dramatically higher prices, and the promised efficiencies and cost savings are often either not realized, or they’re certainly not enough to offset the market power that’s gained.”

He said UNC and Carolinas HealthCare probably already operate efficiently, and use their large buying power to get best deals on equipment and supplies.

“I think it’s hard to make the case that they’re suddenly going to find all these new savings and efficiencies and synergies such that you don’t have to worry about their added market power,” Greaney said.

Consolidating parties often make the efficiency argument, saying cost savings would be so large they would offset the power to raise prices.

“That’s really never been successful in the courts because it’s so hard to prove to begin with. It’s sort of speculative, how much you’re going to save down the road, and that you couldn’t do it otherwise by being more efficient on your own,” Greaney said. “There’s reasons to be skeptical of those claims.”